威世科技 (VSH) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2002 earnings results conference call. Now at this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you do you have a question during the meeting, you may depress the one on your touch-tone phone. You may also remove yourself from the queue by depressing the pound key. If you are using a speaker phone, please pick up your handset before depressing the numbers. Now, these instructions will be repeated later during the meeting. And if you should require operator assistance during the call, you may depress 0 then star and you will be assisted offline.

As a reminder, the conference is being recorded. I would like to turn the conference over to our host, Chief Financial Officer, Mr. Richard Grubb. Please go ahead, sir.

Thank you. Thank you for joining us for our fourth quarter conference call. With me today will be Dr. Felix Zandman, our Chairman and CEO, and Dr. Paul, our President and COO. As usual, I will give a summary of our results for the fourth quarter and total year, and Dr. Zandman and Dr. Paul will elaborate on the operations.

First of all, I would like to limit our discussion to include comments on the normal operations. So therefore, I would like to also discuss in the beginning the number of unusual expenses that we incurred during this quarter so that we can get it out of our way and we can talk about the normal operations later. As you all know, previously we announced that we would be taking a charge for tantalum write downs between $130 and $150 million in January of this year. The actual adjustments that are included in this quarter included are as follows: We have taken $131 million charge for tantalum's futures and current inventory levels. These charges much taken due to the above-market prices that we have contracted for, for future delivery of tantalum powder at Vishay, and also for some overpriced inventories due to current cost reductions and market values for the raw materials.

In addition, we have incurred a million-dollar writedown for a market adjustment for our raw material in palladium. Through this quarter, we also took a $3.7 million, um, charge for disposal of miscellaneous inventories and closed the facilities during the year. The closed facilities and the, um, restructuring that was announced for the fourth quarter totaled $26 million, but basically for fixed assets, restructuring, and debt cancellations. The total of these jumps was $162 million on a pretax basis, the majority of this was noncash. After eliminating these adjustments for the reported pretax loss of $123 million for the fourth quarter, the profits would have been $10 million in the pretax basis and would have earned Vishay approximately 5 cents a share on an after-tax basis.

I would like to analyze this 5 cents that was contributed during the quarter on operating results. Revenues of $459 million represents a slight deduction over the third quarter revenues of $471 million and a 20% increase over last year's fourth quarter of $381 million. This is mainly due to the full inclusion of general semiconductor for this quarter, fourth quarter ended 2002, whereas we had it on for only 1 1/2 months for the last quarter of last year. Gross margins were 21.1% for this quarter versus 22.7% for the third quarter of this year.

Now, I would like to split our discussions into passive and active products. Fourth quarter revenues for our passive products were $198 million, basically flat in the third quarter of this year and approximately 12% higher than last year's fourth quarter. Gross margins for passives were 12.5%, down from 14.3% for the third quarter. Fourth quarter net loss for our passive products were $11 million, and assuming a 20% tax rate, we would have a loss of approximately 7 cents per share as compared to 5 cents per share for the third quarter. On the active side, the fourth quarter revenue for active products were $261 million, down 5% from third quarter revenues of $275 million. Gross margins for our active products were which 27.6% this quarter, down from 28.8% the last quarter or third quarter of this year. Fourth quarter net earnings per active products were approximately $19 million, and assuming a 27% tax rate, our profits would have been 12 cents for this quarter as compared to 14 cents for the last -- or the third quarter of this year. Plus, the combination of these two product lines would have produced a net earnings per share, as I said before, 15%, before nonoperational charges of $152 million, or 78 cents per share on an after-tax basis of, for the quarter.

Some other key numbers on our financial results for the quarter in the year end are as follows: Our cash balance at the end of December was $311 million, down from $408 million in September 30, 2002. This is primarily due to cash fused in our acquisitions of DCC Components in late December. Our long-term debt is $735 million, approximately $250 million higher than last quarter, due to the debt assumed or incurred from BC Components in late December. Inventories without BC Components are $522 as opposed to $556 million, a decrease of $34 million dollars. Accounts receivables are $312 million as compared to $342 million at the end of September, a decrease of $30 million due to lowered sales and improved collection efforts during this year. Total cash generated from operations for the year was a positive $310 million. Capital expenditures for the year were $107 million. Depreciation and amortization for the year was $177 million.

Before I turn the call over to Dr. Paul, I would like to remind you that none of the operating or reporting results of the operations for the year include any numbers associated with BCC Components. That acquisition was made at the very end of December and will start to be included in Vishay's results as of January 1, 2003, um, and Dr. Zandman and Dr. Paul will discuss the details of this acquisition later on in the conference call.

I would like to turn it over to Dr. Paul now who will go into detail, and we'll be waiting for questions at the end of the program. Thank you.

Thank you very much, Dick. Let me go to operations, and let me talk first of all about the economic environment we're living in. The world economy overall is slowing down further. There is a general wave of confidence with investors as well as consumers, and also, of course, the political instability worldwide doesn't really help. The market conditions in electronics continue to be difficult. The whole situation is characterized by low backlogs, but also by little visibility concerning the further developments. The Americans and Europe are depressed, Asia is doing relatively the best at this point in time.

Talking market segments, automotive remains quite stable, um, consumer telecom and capital goods continue to be weak. Based on recoveries after a slowdown, of course, of laptops and of gains. The inventories the OEMs are principally affected, but they're still too high in European and American distributors. They are quite okay in Asia. Also in Asia, in that sense it's the best -- the POS grows in Asia.

There continues to be quite severe price pressure on commodity products in general. The business development of Vishay can be characterized as follows: We achieved $459 million in the quarter sales, versus the prior quarter $471 and prior year, $381. Of course, these numbers are driven by precision, so if you eliminate it, the impact of the acquisitions in the fourth quarter would have been slightly below quarter 3 by 2%, but 9% above the fourth quarter of the prior year. The book-to-bill ratio was at .93, in actives it was .88, and in passives, 1.0. Numbers were slightly better than in the previous quarter. The backlog decreased to 2.3 months or $358 million. The latest decline in Vishay continued to slow down, I reported that already in the last quarter. We saw a weighed average of minus 3% versus prior year and of minus 1% versus the prior quarter.

Let me now talk about the operation results, without one time effects, as Dick was indicating. So based -- and I compare first vis-a-vis prior quarter. Based on a sales decrease of 12 million, the operating margin was reduced by 12 million, and the main elements for this development were the ASP decline, which gave us a minus 4 million; volume was down with an impact of minus 3 million; we had reduction of inventories, as Dick was mentioning, with an impact of minus 4 million;and we had additional fixed and SG&A costs, due to acquisitions of 4 million.

On the other hand, we had savings in SG&A of 2 million, all of this explains the financial development. If you did the same exercise vis-a-vis the fourth quarter the prior year, again, eliminating one-time effects, the sales increase was 78 million and the operating margin increased by 25 million. If you really, um, look ohm at operations, the operating margin increased year over year. Basically, the driving elements were ASP decline, which gave us a minus 12 million, on the other hand, volume went up by 35 million. Impact on the PNLs were 35 million. We had additional SG&A costs due to the acquisitions of 11 million. On the other hand, and we are quite proud of that. We had cost savings, vis-a-vis year of 18 million prior in the quarter. On the other hand we had inventory reduction, vis-a-vis prior year, which burdened the quarter by 5 million. Also, this explains the operational results in the comparison to prior year.

Talking about some operation highlights, the inventory turns in the quarter have improved to a level of 2.9, which is substantially better than prior year where we only achieved 2.2. Um, we continue to increase the share of head count in low-labor countries and other two points we gained. We went from 65% to 67%. It's an ongoing project, very important for us, you know.

The on-time delivery is no problem, it's constantly above 92%. Capital spending is on the control on the tight control for the year -- I'm talking the year now. We spent capital of 107 million, vis-a-vis depreciation of 117 million. Capacities, um, quite under-utilized in commodity passives, on the other hand, well-utilized on the active side.

Let me now come to our main product lines, like to start with resistors and inductors. The business is quite stable. After some recovery, it has stabilized unfortunately on a relatively low level. We achieved sales of 83 million in the quarter, which is more or less on the level of the prior quarter, and 9% up, vis-a-vis prior year. Book-to-bill is at 1.0, also indicating stability. Backlog as grown to 2.6. Slightly grown. The price decline has virtually stopped. The positive impact of our numerous specialties offsets the impact of the commodity business in this business. The gross margin has remained at the level of the 20% of sales. After a substantial recovery from a level of 13% only last year. Inventory turns improved to 2.8. Um, we are preparing at the moment quite important for us to move resistor chips to China and to integrate the main resistor operation of BC Components. I will comment on that later.

Talking about capacititors, as to be stated this, business continues to be the most problematic one for Vishay. It continues to suffer from the bad economy in general and worldwide capacities. We achieved sales of 82 million in the quarter, which were 3% below the prior quarter and 8% below prior year. Book-to-bill, on the other hand, was at 1.0, also in this case, we can talk about a stabilization. The backlog is at 2.9 months. The price decline is slowing down further in this portion of the business. We saw a minus 1% versus prior quarter, weighted average of cost and a minus 4% versus prior year. Disregarding the writedowns, which Dick mentioned, of raw materials, the gross margin was at the level in the quarter of minus 5% of sales, which slightly deteriorated from the prior quarter, mainly due to lower sales.

There's major restructuring on the way in this product alliance, which rank on the capacititors. We will have finalized the complete move of power caps to the Czech Republic by the second quarter of this year. We will have started the project to moved molded tantalum caps to China. We have started that. We're in process to minimize the fixed costs in North America, in Germany. We're also in process to consolidate the film capacitator portion with the activities of BC Components, which will give us cost synergies, cost reduction, and we also will benefit in the future from the profit of BCC activities in capacitators, aluminum capacitors, and ceramic capacitators.

Measurements group, um, we had, as was indicated before, substantial growth through a field of transfusers. We achieved in the quarter sales of 32 million, 15% over prior quarter and 214% over prior year, basically due to acquisitions. Book-to-bill in the quarter was at 1.02. Backlog is at 2.3 months. Gross margin, a profitable business, gross margin runs at the level of 33% of sales. There are substantial programs for exploiting synergies between the new acquisitions on the way, and we expect this will impact our research at the second half of the current year.

Talking about Siliconix, I think we can state that here we are in principally healthy business conditions, the sales in the quarter continue to grow slightly. On the other hand, the orders did not support major growth short-term. Sales were 102 million, 2% over prior quarter, and 33% over prior year. Book-to Bill was at .9, and the backlog was relatively low, only 1.2 months. The gross margin in Siliconix continues on a very satisfactory level of 31% of sales, which is a dramatic improvement versus prior year, where we only achieved 20% gross margin. There was no price decline versus prior quarters in Siliconix, and vis-a-vis the prior year it was just 4%, which was a highly innovative product line is [INAUDIBLE]. The inventory term, excellent at Siliconix is at 4.0.

All the other semiconductors, um, we saw some order slowdown, especially at palladium the third quarter, which lead to a decrease of sales of this product group. Also in this case, the current orders don't really support a short-term recovery. We had sales of 160 million, which was 9% below the prior quarter, but 24% over prior year. Again, if you eliminated the impact of acquisitions, which I think makes the comparison more meaningful, we still will be 9% over prior year, even taking out the acquisitions. Book-to-bill was at .87. A little disappointing, but the backlog were 2.2 months. The price decline was 2% versus prior quarter, and 5% versus prior year. Gross margin also in this case, like Siliconix, continues on a very satisfactory level of 26% of sales. Inventory terms, also like Siliconix, excellent, 4.2. Major project in this product area is the move, production move from Taiwan to China. We will move 800 people as I talked about already, 800 people in the course of this year, which will give us an annualized cost savings of eight to $10 million. Um this, product group in particular is very effective and the operation is very stable. They have a tight control of service of inventories and of overhead. We are very pleased with this activity at this point in time.

Now, allow me to talk a little about the new acquisition, BC Components and let me first of all, introduce the enterprise itself. You may know that this used to be part of Phillips until the year '99. Very well-reputed, a long-term supplier of passives, good names like Beyschlag, like Phillips itself, like Centralab, quite famous in our industry. The levels in this depressed environment is 285 million EURO. 45% of the business is with resistors and 55% is with capacitators. They are quite strong in all geographic segments, especially in Europe. They're also, in terms of micro segments strong, in consumer, particular strong in consumer end and automotive. They were headquartered in [INAUDIBLE]. We have already closed the headquarters.

Now, from product standpoint, they are a broad line, and like Vishay in passives, they offer [INAUDIBLE] chips and all kinds of leaded resistors with many specialties, nonlinear resistors. On capacitors, they offer film capacitators, ceramic disks, and leaded NLC capacitors, as well aluminum electrolytic capacititors. They have established plants, which is important for us in China and in India, and they do have a competent management there and everywhere.

We believe, um, BCC acquisition is a major opportunity in two aspects. Number one, from a marketing standpoint. We are talking a good competitor to be integrate with excellent technology, competitive manufacturing costs, thanks to [INAUDIBLE], and recognized service. Excellent service reputation. Together with them, we will have a dominant precision in resistors worldwide; we will have a very strong, even dominant position in all resistors in Europe; we will have together with them, a strong unit in film capacitators and ceramic capacitators. We will achieve better efficiencies by bringing the two groups together. Through the acquisition, we're back to aluminum capacititors in a profitable way, as these people know how to make their own foil, which is important for the cost. There is a good basis, maybe BC Components is a good basis also for further growth in nonlinear resistors where they offer the technology. And they're established very well in Asia, which also should help us. So we believe that from a marketing standpoint, it's a perfect fit between the companies, and we increase our strength in the -- on the passive side further.

Finally, of course, but most importantly, we also regard BC Components as a major opportunity to increase our profitability. BCC by nature provides excellent potential for savings through synergies. They make the same as we do, so, really, it's an invitation for exploiting synergies. Immediate steps are the merging of the sales forces and integration of the headquarters as I mentioned before. The headquarters already closed and the sales forces will be merged within the next few weeks. Already these two-steps will make the acquisition profitable even at today's depressed sales levels. Further streamlining of G&A, and of plant fixed costs is underway. We will do that also, of course, by merging with Vishay's equivalent activities. We will enjoy savings as we go. There will be further savings in purchasing, as you can imagine and in logistics. And we plan substantial moves from the European facilities of BC Components to lower labor countries, namely to China. Important space and infrastructure is already available, which makes this move relatively fast.

All together, let me highlight what we expect a total potential of improvement of about $70 million dollars, which we will exploit in steps over the next two to three years. We are quite excited about this acquisition. It gives us many new opportunities in our passives business for growth and for better profits. It's, I believe, the continuation of Vishay's strategy to grow through acquisitions, a strategy that has been good for us all along and helped us to stay strong also in times of economic decline.

Thank you.

Thank you, Gerald. A -- Dr. Paul and Richard Grubb have made a quite a comprehensive presentation of the numbers, of the company, and what we have done during the quarter and during the year. I would like only to underline once again, in a few words in the Vishay strategy.

We're broad line manufacturer. We have a very broad line of passive and active components and will continue to add to this line. We believe very much that having a broad line gives us a better security in terms of absorbing fluctuations in market and also having the leverage to penetrate more our customers. We want to be the best in performance through specifications, to have the newest products, best products, best-performing products, and I believe we're doing it quite well. We would like to be best in service, which we are not, unfortunately. We're trying quite strong to improve that. We do so some improvements, namely one face to the customer, introduction of SAP, our three modules, and things like that, and I believe another year or so we also will win this battle.

But concerns of cost, we would like to be the best in cost and best in cost means most of the production in areas of low cost such as China, India, Philippines and so on, and already in those areas, we have over 10,000 people, which represents about 40% of our total employment. There is another very important group in low-cost countries such as the Czech Republic, Hungary, and Israel. And at this point, while we're not completely transferred to the lowest-cost countries, we have an infrastructure to do that. Things are moving to China, in particular, presently, tantalum capacititors and other products, and we believe we'll be in a situation of within a year or so of 75% of our total employment in low cost countries.

We will continue to broaden our base, and also to integrate vertically our products. For example, we have done an integration in our [STRANGIC] line, by buying transducers and instrument companies. We entered the market of a half billion dollars of which we presently have over a hundred-million and already became a major force. Also, the next step will be entering into the systems through the transducers, which is a market for about two to three billion dollars.

Now, how do we do to accomplish those things? First, the acquisitions. You're lucky or good execution has given us a situation where by all our acquisitions, except one, I would say, came through very nicely. Especially lately, General Semiconductors and BC Components are moving in very well. General semiconductors is behind us. Most of the absorption happened already. There is only one step more to do, to transfer a major facility from Taiwan into China. It's on the way and coming back from China. Last week I came back and have seen myself, the progress, quite, quite, um, impressive.

Market penetration also been occurred through acquiring companies such as BCC. It's -- it used to a major competitor of ours. Now together, it represents a major opportunity for us, not only to penetrate markets, but also to reduce costs as Gerald said. About $70 million will be reduced in costs and already, the first quarter of year 2003, during this quarter, BCC will become accretive. Remember that BCC lost last year $20 million. So there is a major turnaround concerning the costs of BCC, and I think that this acquisition also will be a, um, absorbed very fast. Maybe even faster than General Semi.

R&D, and new products and processes continue on line. We try to emphasize that; we try to emphasize that we want the customer to improve our service. In a sense, we want to become easy to do business with our customers. I must say that unfortunately we're not there yet, but this is one of the main problems we have in the company, and we're working hard with that.

Now, a few words about operations. I don't want to be repetitive. The sales are flat. The economy is not good, but despite that, we have a few bright spots. Siliconix is excellent. The remainder of our, um, active components, such as [telefunken] is doing quite well and we expect it to continue. In spite of the fact the semiconductor business, like the passive business, is in doldrums, we -- the active components are doing well.

Some specialty products are doing well also. The problem is capacititors. I don't want to be repetitive, capacititors are flat or worse, but this is only 20% of our sales. The remainder of 80% is in areas outside of capacititors and that's the reason why operation, if we're doing not bad considering the best situation worldwide as we're doing quite well as compared to competition, we're in -- if it were not for the capacititors, they would be in good shape.

We have written off tantalum powder. We didn't have to do that, but we have done that because we believe that in the future when we have to buy tantalum powder on the contract, the prices have been too high, and therefore, we wanted to get it in advance of the purchases, and that's the reason why you have seen such a big writedown. And, um, concerning future write-offs, there might be some but nothing of this nature anymore.

Operations all around, I personally am satisfied in few of the fact that the economy is very bad, there continues to be pressure, we at the company are tight, doing fine, moving to lower-cost countries and really presenting our future well in respect to competition. I'm optimistic for the future because I know that one day or another, electronic business will get out of the doldrums and we'll be prepared to take advantage of it.

Just one remark, what counts presently is to generate cash. That's the most important thing. This is not a time the PNL, not of such purpose as cash itself. Cash is king in bad times. We have generated $310 million in spite of everything during the year, and this is really enormous and good for us, and the second issue we had as a goal. To be in Asia because Asia becomes extremely important for, um, future functioning of sales and of operations altogether. Presently, we're already 38% of our products are sold in Asia, so all in all, while the situation is nothing to be proud of, but in view of the economy, I feel we have done not so bad.

Thank you very much. We're open now for questions.

Ladies and gentlemen, if you wish to ask a question, please press the one on your touch-tone phone. You will hear a tone indicating you have been placed in queue. If you pressed one prior to this announcement, we ask that you please do so again at this time. You may remove yourself from the queue by pressing the pound key. If you are using a speaker phone, please pick up your handset before pressing the numbers. Once again, if you have a question, please press one at this time. And our first question is from the line of Patrick Parr with UBS. Please go ahead.

Good morning, folks. Question for you regarding the BC Components cost savings. That's 70 million in expected savings. What kind of a base does that come from?

Well, basically, if I can answer that, it comes approximately half from manufacturing, half from SG&A. I think I mentioned it on the SG&A side, it's clearly the closing of the headquarter, it's clearly the merging of the sales forces, but also on the purely administrative side, quite some cuttings, because they had, in Asia, for instance, we just need one, we have already one. You can do all kinds of things also in the plant. It has to be stated that BCC, basically they knew what they should have done but didn't have the means to do it, you know, in Europe, if you want to cut, it always requires quite some means and BCC was not in the position anymore financially to finance that. We're going to do that. On the manufacturing side, it's obvious. A little bit the same thing. It goes down to capacity adaptations. They couldn't afford any source of a plan anymore, so they had too many directions for the given capacity, that's an easy one to correct. But then, of course, we're going to move product lines. We're going to move from Europe and basically to Asia basically. I hope this answers your question.

Okay. Just -- yeah, Dr. Paul, but from a quantitative point of view, does that 70 million in savings represent, you know, 30% of their current cost structure or 80% of the current cost structure? Can you give us any sense of that?

Let me see. I have 260 million sales, they have gross margin say of 20%, 15, so it's 200 -- it's approximately, I would say, 30%, 25 to 30% of their costs.

Okay. That's very helpful.

Thank you.

Um, second question, in terms of generating cash flow for the current year, 2003, Dick, I was wondering if you could communicate any kind of a goal that we could have in mind for what sort of cash flow we could expect and whether that one generated, obviously, mostly from working capital or from other means.

We have not disclosed what our projections for '03 as far as our earnings or cash flow at this time. We'll just report it on a quarterly basis as a, um, as they pan out.

Okay, and then I guess a final question, I don't know if you answered this one either, you usually offer some outlook into the current quarter in terms of sales, expectations, um, you haven't done that yet. Is there anything you can say to that?

Yeah, we -- we are not going to guide at this time. With the acquisition of BCC, um, it becomes a little less clear exactly what our revenues will be. However, I think it should be easy for people to project their own gutting by what actually happened in the fourth quarter this year and what we have projected to be the annualized contribution by BCC. We will not, at this time, make any estimates for the quarter or the year.

Okay, and then if you could allow me one more. The tantalum writedowns, would there be a positive or any impact at all to margins in the capacitator business moving forward after that?

Well, um, it -- it will be -- the hundred -- the writedown that we took during the fourth quarter, um, would have been negative over the next four years if it was allowed to cycle itself through. We're required in the U.S. GAAP to evaluate, according to the accounting principles, our liabilities each year in the quarter, and we had to do a mark to market, and that is an adjustment hit in the fourth quarter, so to the extent it will not happen, um, it will be positive, but, um, again, it's basically utilization based on a continued cost savings on our part.

Right.

We just confirmed that the current year, that means 2002 was characterized by palladium, by tantalum price of $3.13 dollars per pound. The three yield devalued at 250. By nature, it will help the gross margins.

Okay. That's very helpful. Thank you.

Okay.

Our next question comes from the line of Jerry Labowitz with Merrill Lynch. Please go ahead.

Okay, yeah. If you could spend a couple of minutes, tell us when you look at the lay of the land this year in 2003, given, um, the fourth quarter and the outlook, all your customers tell you, when you look at the passive's business and you look at the cost reduction you have implemented and what has happened to pricing, when do you think that business reaches break even at the earliest?

Yeah. Anyway, this is a matter after volume. Not only after volume, but also cut costs. The passives at the moment, you are right, are going through a relatively deep valley. But only given a variable margin, which we enjoy, um, it's only -- it doesn't take much of an increase to make it profitable. It really goes fast. On top of that, we're moving and of cost, the BC Components will help us because we can't bring together businesses. But to give you a point in time is difficult. It really depends on the economy also. Sorry.

Can you -- in your planning, can you think could happen in the second half of this year?

Depends -- as I said, depends really on the economic development. The cost reduction, you know us, the cost reduction programs normally kick in on time, but economy, we are not master of. But it's true. We do hope, of course, like many others, for an improvement in the course of the year. This is my personal opinion.

I know, but hope only gets us so far.

What is that, excuse me?

I said hope only gets us so far.

Well, Jerry, that's clear. On the other hand, we have to do something about it. We cut costs.

Thank you.

We have a question from the line of Herve Francois. Your line is open.

Yes, thank you, can you hear me?

We can hear you.

Can you talk about the BC Components contributing about 250 of revenues in 2003. Can you give us a sense of how that may break out? Is it going to follow the traditional seasonal pattern of the Vishay's core business, or because they predominantly serve customers in Europe may be wanting to be different?

Do you talk about the, um, the cycle during the year?

Yeah.

Well, it will be -- it's more or less the European cycle, I would say. The sales predominantly in Europe and Asia, on the other hand, is not the cycle. It's more linear. The European cycle is always -- in the first quarter is strongest and the third quarter is the weakest. The existence of Asia in this portfolio makes it more even. So if you go, as Dick said before, if you go more in the linear form, you're not so far off.

Okay. Once BC -- as BC starts getting under a full ramp, um, do you really, um much do you expect BC to absorb some of the tantalum powder purchases that, um, you're still on the contract to make out there?

Not at all because BC Components doesn't have tantalum capacititors.

Okay. Lastly, um, if you can give us an idea if you budgeted what kind of Cap Ex you looking for 2003, I guess, inclusive of BC?

Without BC, we'll be flat, may be a slight increase as we go only a slight one. And BC Components will of course increase the whole number, but not significantly. We will be careful in capital spending in the current year.

Okay, thank you very much.

on our next question comes from the line of Ted Kundtz with Needham & Company. Please go ahead.

Thank you, guys. Gerald, just to refresh, I think you mentioned the gross margins at BC were about 20%; is that correct?

It's between 15 and 20. I corrected myself afterwards. Between 15 and 20%.

15 to 20%.

Also, their accounting, we have to go back. I know the operating margins, but we have to apply strictly.

Right.

Really, we have behind process to analyze their numbers to have the real solid numbers for the gross margins. I think it's between 50 and 20, depending on the product line. Yes.

Is there any sense you can give us for what you think their SG&A would be running, what kind of rate that would be running at, given the cost savings you're incorporating?

Substantially below 10.

Substantially below 10 per quarter?

10%, right?

Oh, 10%. I'm sorry.

You understand, we're merging all that.

Right.

There will be no BCC SG&A left. If you want to look at it separately, it will be substantially below 10%.

Okay.

Ted, we don't report below the line on the product line on how the SG&A how it pans out. You'll be able to discover that.

I know that. I'm trying to do a little pro forma thinking here. Okay. The last question I had for you was, Gerald, do you see any chance gross margins could be moving up in the next quarter, or do you think the price pressure will still remain fairly intense here, and if you could comment on pricing in general, any directions you see out there?

Well, we can't project, but from the pricing, of course, I can comment on it. At the moment, we do not see an accelerating -- accelerated price decline. What I try to say, the price decline for Vishay at least, overall, is relatively low at this point in time because it's a sort of mixing. Our specialty products talk a higher share, in the meantime, of our total portfolio, and especially the products have seen a decline or we can partially raise prices. All of this helps us. I don't see a major trend as we go. For commodities alone there is an unbroken price decline.

Okay, thank you.

we have a question from the line of Shawn Severson with Raymond James. Please go ahead.

Thank you, good morning.

Morning, Shawn

Could you help me understand why pricing may not continue to accelerate in a downward trend? If you look at the commodity products in general, are you finding that people are walking away from business or -- or volumes report picking up enough to offset it. What do you think the reasoning is?

I could imagine not many people want to sell below variable margins here. And, of course, the price decline was breathtaking in the last 18 months, and there is a limit for everything, I believe. This is my personal expectation, but I did not say for commodities, the price decline stopped. I said for Vishay, the product mixture, it practically has stopped working down because our specialties play a more important role. The commodities themselves, Sean, continue to decline, but is not accelerating, I believe. Not accelerating. There are limits for everyone.

Okay, and then -- in this, excuse me, in your fourth quarter, what was the mix of specialty products on a revenue basis?

We didn't measure it like that. I can do it for you, I can come back later, but one thing is for sure, we really lost volume in the commodity part of the business, and, of course, we can make a ratio now, but take it for granted that our specialties of a higher share than they had before, but I don't have the number at hand. If you're interested, Dick will help me convey the message to you.

I think in the past, you passed around a number of a third of your products, kind of quantify a specialty, is that right, historically?

That's right.

Maybe an increase then obviously? Given the commodity?

Of course, it's up. This is a given it's up. I couldn't give you a number at this point. Up is for sure.

Okay, that's close enough. Thank you.

Ladies and gentlemen, we have time for one more question and that comes from the line of Sam Adondakis with Prudential Securities.

Yes, good morning. I was hoping you could talk about linearity you saw in the quarter and what that may tell you about what you may see in the current quarter?

Didn't understand the question, sorry.

How the business was shipped during the fourth quarter and how that may relate to what the first quarter is going to be.

Oh. So if you reduce the sales per working day, it was relatively flat. There is no pick up or down during the quarter. Around Christmas, of course, it's always a little low in Europe, as in also the United States, but there is no indication what you can get from the way out of business, when during the quarter. I don't think it's a way to predict the next quarter.

We don't believe any bookings were held back in year end inventories, things like that. That's why, again, we say we were not able to give guidance to the first quarter.

Okay, great. And then, um, could you give us more clarity on the other semiconductors segment? Can you break that out, Telefunken and General Semi?

Yes, we can. Behind that we have the telefunken lines, which break down into [INAUDIBLE]. Then we have the acquisition of, um, Infineon, and finally, we have General Semi, the acquisition that we had a year ago. So if I split the sales of all that, into approximately 40%, it's General Semi, that is power diodes and PVS, then approximately 25%, small signal, which is small signal and transistors, and approximately 35%, um, we have [INAUDIBLE]. Within that, it's approximately 50%, its couplers and modules and the other 50% is sensors and IODCs.

Okay. Great. And then finally, um, are there -- could you talk a little about how any additional acquisitions aside from BCC are going come in, um, in the next quarter and the following quarters?

No. This is, to me, we have not changed our policy. We will continue to look into companies if the accessions, which make sense. We are strong enough, we can do it and we will do that. We still want to have acquisitions in the passive area to re-enforce certain product lines, especially variable resistors and some capacitator lines, but mainly we would like very much to continue to grow in the street semiconductors and there are many companies available, many companies come to us for consultation or discussions. We look at this and, if it makes sense, we will make a move like we have done in the past.

Okay.

We didn't change our policy. We will continue to acquire.

Okay. I was trying to get clarity into any acquisitions that might be adding incremental revenue in the measurements segment over the next couple of quarters.

Yes, we have acquired five small acquisitions in the transducer area, giving us a nice base of penetration to transducers. There are many synergies there, and the profitability will increase as we go. A, um, I can't give you the numbers exactly. Presently. What you get is 35% gross? Yes. The gross we know is 35% there.

Okay, thank you.

We have a final question from the line of Michael Morris with Solomon Smith Barney. Your line is open.

Yes, thank you. Good morning, everyone.

Morning.

I believe in the opening remarks, that there was a comment about inventory still being too high, particularly in the Americas and Europe, and I wondered if there was any additional light that you could shed upon that topic, either by channel or product category. That would be helpful.

I made this comment, through a distribution, I said. I restricted it to distribution and restricted it to North America and Europe. We follow that, of course, like all our competitors do also, and we found principally the distributors want to have four turns, as far as I understand, and we believe that there are more, like 3 to 3 1/2 turns, and this is across the board is fine. As far as I see it. So there is the basis of my comment.

Is the reason you're limiting the comment to distribution because you have a better window into it --

that's before we know it better, but secondly, it's through, after all what we know of OEMs and CEMs by nature, the inventories are much better.

Okay. And my last question, you mentioned the savings that you project over the next two, three years on BCC, and I wondered if that figure was net of any cost for, let's say, moving production to low cost geographies, severance for employees and so on and what are the challenges to moving your production?

Okay. first of all, of course, this is the run rate. After all this, has been spent to lay the people off, to move products, this is additional. But this has been reserved, as part of the acquisition cost.

Okay.

Concerning moving of production, we have done it before somehow, so we really move since years, production, there is always a problem in moving production principally, but I think as we have done it so often or quite successfully, except for some hiccups in between, which are normally a temporary effect, I am very confident, I am confident we can do it. I think it's important in the context that the plants which we are moving to in Asia already exists and they already have an infrastructure. It's not that we start fresh. I am quite confident.

Great. Thank you very much.

There are no further questions; please continue.

I want to thank everyone for showing up and listening to the results for the quarter and the year. It was a difficult year. We took a lot of cost reductions and cost expenses in the fourth quarter. And we look forward to, um, better years going forward. And thank you for calling.

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